Bernstein upgrades Elis to “outperform,” citing share buyback and cash strategy

Investing.com -- Elis has been upgraded to “outperform” from “market-perform” by analysts at Bernstein in a note dated Monday. 

The upgrade follows the company’s strategic shift in capital allocation, which includes a new €150 million share buyback program, a cautious approach to acquisitions, and a greater emphasis on returning capital to shareholders.

The company’s performance in 2024 aligned with expectations, with organic sales growth reaching 5.2%. 

This growth was supported by steady volumes and price increases, largely attributed to wage inflation.

The French company, specializing in textile, hygiene, and facility solutions, also saw an improvement in its adjusted EBITDA margin, which climbed to 35.2%, reflecting efficiency gains and improved energy purchasing conditions. The company experienced strong performance in Germany, one of its key markets.

Bernstein anticipates a more restrained environment in 2025 but does not identify significant concerns. 

EBITDA projections have been revised to align with company guidance, which forecasts over 4% organic sales growth and continued margin improvement. 

Bernstein expects a 20-basis-point rise in the EBITDA margin to 35.4%, just below the company’s internal estimate of 35.5%. 

Additionally, the €150 million share buyback program has contributed to an upward revision of earnings per share estimates.

Elis is continuing to deleverage, with a commitment to reducing leverage gradually by 0.1x per year, bringing it to 1.85x by the end of 2024. At the same time, the company has announced a 5% increase in its dividend to €0.45 per share. 

The introduction of its first share buyback since its IPO a decade ago signals a clear shift in capital allocation priorities. 

While Elis remains focused on bolt-on acquisitions, its management has emphasized that there are no discussions regarding any large-scale acquisitions, particularly in the U.S. market.

Bernstein has raised its price target for Elis to €27.50 from €23.90, citing the company’s strengths and a 24% discount to its peers in terms of EV/EBIT 2026 estimates. 

The brokerage views the share buyback program and capital allocation strategy as critical steps toward unlocking value for investors. 

The price target adjustment also reflects the removal of a 3% risk premium that was previously applied due to concerns over Elis’ acquisition appetite.

Despite a slightly weaker price effect in 2025, Elis remains on solid footing in its key markets, particularly France and Germany. 

The hospitality sector in France is expected to see a boost from the Olympic Games, while Germany continues to deliver strong growth. 

However, Elis faces challenges in Scandinavia and Eastern Europe, particularly in Denmark, where pricing negotiations in the public healthcare sector have been difficult.